Change is a constant feature of business strategy, driven by internal developments and external pressures that influence an organisation’s need to adapt and evolve.
What Is Business Change?
Business change refers to any transformation in the way a company operates, whether in terms of its structure, culture, processes, technology, or overall strategic direction. Change can be reactive, in response to external events or crises, or proactive, based on strategic decisions aimed at improving future performance.
Business change often involves the modification or redefinition of goals, the implementation of new processes, or the restructuring of operations. It can affect all areas of the organisation and requires careful planning and leadership to be successful.
Relevance to Strategy
Strategic management is focused on the long-term goals and direction of a business. Change is essential to strategy because:
It allows businesses to stay aligned with market dynamics and shifting consumer expectations.
It helps organisations respond to internal inefficiencies or problems, such as poor performance or outdated systems.
Change can enable innovation and growth, allowing businesses to develop new products, enter new markets, or adopt new technologies.
It is essential in times of crisis, where organisations need to pivot their strategy to survive.
Without effective change, organisations may fail to adapt, lose competitive advantage, or become irrelevant in a rapidly changing environment.
Causes and Pressures for Change
Businesses are influenced by a range of forces that compel them to change. These forces can be classified into internal pressures, which come from within the organisation, and external pressures, which arise from the environment in which the organisation operates.
Internal Causes and Pressures
Internal forces for change are driven by events, challenges, or decisions originating inside the business. These can often be influenced or controlled by leadership.
1. Leadership Changes
A change in leadership can have a significant impact on the strategic direction of a business.
New leaders may bring a different vision, strategy, or organisational priorities.
Leadership change can result in organisational restructuring, culture shifts, or altered strategic goals.
Leaders often initiate change to improve performance, introduce innovation, or navigate through crises.
Example: When Satya Nadella became CEO of Microsoft in 2014, he shifted the company’s focus from software licensing to cloud computing and digital transformation, leading to a revival of growth and innovation.
2. Organisational Culture
The culture of a business refers to the shared values, beliefs, and behaviours that influence how people within the organisation work and interact.
If a company’s culture is resistant to innovation, diversity, or change, strategic change may be necessary.
Cultural change can be difficult but is often needed for the business to remain competitive and adaptive.
A misalignment between the existing culture and the organisation’s strategic objectives can create inefficiency and disengagement.
Example: IBM, historically a rigid and hierarchical organisation, underwent cultural change in the 1990s to become more customer-focused and collaborative, helping it to successfully enter new technology markets.
3. Financial Performance
Financial results are a strong internal indicator of the need for change.
Poor financial performance may prompt urgent changes such as cost reduction, asset sales, or turnaround strategies.
Conversely, strong performance can create an opportunity to invest in expansion, innovation, or diversification.
Financial metrics such as profit margins, return on investment (ROI), and cash flow can guide strategic decisions.
Example: After several years of declining profits, Tesco shifted its strategic focus back to core UK operations, closing underperforming international stores and revamping its product lines and pricing strategy.
External Causes and Pressures
External pressures come from outside the organisation. While businesses cannot control these forces, they must respond effectively to survive and succeed.
1. Market Conditions
Market conditions refer to customer preferences, demand trends, and broader economic factors.
Changes in consumer tastes or buying behaviours can quickly render existing products or services obsolete.
Economic shifts such as recessions, inflation, or interest rate changes affect spending patterns and demand.
Businesses need to adapt their products, pricing, and marketing strategies to stay relevant.
Example: The growing demand for sustainable products has led many retailers to switch to eco-friendly packaging and more ethical sourcing.
2. Competition
Businesses operate in competitive environments where rivals may innovate, expand, or lower prices, forcing others to adapt.
The entry of new competitors, especially low-cost or technology-driven entrants, can threaten market share.
Existing competitors adopting new technologies or business models can change industry standards.
Mergers and acquisitions can increase competition and reshape the market landscape.
Example: The emergence of online travel booking platforms like Expedia and Booking.com forced traditional travel agencies to move their services online or risk losing relevance.
3. Regulation and Legislation
Governments and regulatory bodies introduce laws that govern business operations, such as health and safety, environmental standards, and data protection.
New regulations can require businesses to change production processes, update compliance practices, or withdraw certain products.
Non-compliance can result in fines, reputational damage, or legal action.
Regulatory change often affects multiple industries simultaneously.
Example: The introduction of the GDPR in 2018 required businesses across the EU to implement stricter data privacy and security measures, changing how companies collect, store, and use personal data.
4. Technological Advances
Technology is a major driver of business change, enabling new ways of working, communicating, and delivering value to customers.
The adoption of automation, machine learning, data analytics, and cloud computing can lead to significant improvements in efficiency.
New technologies can make existing systems obsolete, creating a need for investment and retraining.
Businesses must continually upgrade their digital capabilities to stay competitive.
Example: Many retailers now use AI-powered chatbots for customer service, reducing costs and improving response times.
Types of Change
Change can be classified based on its origin (internal or external) and its nature (incremental or disruptive). Understanding these distinctions helps businesses select the right management approach.
Internal vs External Change
Internal Change
Initiated from within the organisation.
Often under the control of managers and leaders.
Tends to be part of a planned strategy.
Examples:
Introducing a new performance review system.
Restructuring the management hierarchy.
Launching a staff development programme.
Benefits:
Can be aligned closely with business goals.
Easier to plan and communicate.
Challenges:
May encounter resistance from employees.
Effectiveness depends on internal buy-in.
External Change
Triggered by factors outside the organisation.
Often unplanned or reactive.
May require urgent response.
Examples:
Responding to a global pandemic.
Adapting to new competition.
Complying with a change in legislation.
Benefits:
Forces the business to be agile and resilient.
Can open up new markets or technologies.
Challenges:
Less control over timing and nature of the change.
May cause significant disruption.
Incremental vs Disruptive Change
Incremental Change
Small, gradual changes that occur over time.
Helps fine-tune operations and strategies.
Less threatening to staff and easier to manage.
Examples:
Improving website functionality.
Updating existing product features.
Adjusting supply chain logistics.
Benefits:
Encourages continuous improvement.
Minimises disruption.
Easier to test and evaluate.
Challenges:
May not be sufficient in rapidly changing environments.
Can lack impact if changes are too minor.
Disruptive Change
Large, significant shifts that may overhaul existing practices.
Often rapid and difficult to manage.
May involve cultural, structural, or strategic transformation.
Examples:
Moving from physical stores to online-only retail.
Shifting from fossil fuels to renewable energy sources.
Replacing traditional banking services with digital-only platforms.
Benefits:
Can deliver major performance improvements.
Enables businesses to respond to external threats effectively.
Challenges:
High risk of failure.
Greater resistance from employees.
Requires strong leadership and communication.
Real-World Examples of Change Types and Drivers
These examples demonstrate how different drivers lead to different types of change in practice.
Blockbuster vs Netflix
Driver: Technological change and shifting consumer behaviour.
Type: External and disruptive.
Blockbuster failed to respond to the rise of online streaming.
Netflix adopted a digital-first approach, fundamentally changing how people consume media.
Apple’s Product Evolution
Driver: Internal innovation and market trends.
Type: Internal and both incremental and disruptive.
Apple continuously upgrades its devices (incremental) but also introduces revolutionary new products (disruptive).
Strategic change is built into the company’s DNA.
McDonald’s Health Focus
Driver: Market conditions and health awareness.
Type: External and incremental.
McDonald’s responded to health-conscious consumers by adding salads, low-calorie meals, and displaying calorie counts.
British Airways Turnaround
Driver: Financial performance and leadership change.
Type: Internal and disruptive.
In the 1980s, new leadership transformed the struggling airline by cutting costs, improving service, and modernising operations.
This deeper understanding of causes, types, and pressures for change forms the foundation for analysing how businesses can effectively manage change in response to internal dynamics and external influences.
FAQ
Poor communication within an organisation often leads to misunderstandings, inefficiencies, and low employee morale, which may not be immediately recognised as causes for change. When communication channels are unclear or inconsistent, employees may feel disconnected from the business’s vision or unaware of important strategic decisions. This can result in resistance to change, duplication of work, or a lack of accountability. Over time, these communication issues can hinder performance and force businesses to restructure, retrain staff, or implement new communication systems to restore alignment and efficiency.
Businesses may delay responding to external changes due to cost concerns, uncertainty about market trends, or fear of disrupting current operations. Some firms adopt a "wait and see" approach to avoid making costly investments that may not yield immediate returns. Additionally, organisational inertia—where systems and routines are deeply embedded—can make quick adaptation difficult. In some cases, leadership may underestimate the impact of external factors like regulation or new technology, resulting in delayed responses that later require more urgent, large-scale strategic change.
Yes, external pressures such as regulatory changes, market expectations, or technological advances can influence internal culture. For example, rising customer demand for sustainability may push a business to not only change its product offerings but also embed environmental values into its company culture. This could include new training programmes, sustainability goals, and a shift in employee attitudes. Over time, external pressures may become part of the internal value system, driving long-term cultural change that aligns with external stakeholder expectations.
The rapid pace of technological change forces businesses to make quicker and often more risk-tolerant strategic decisions. Decision-makers must be proactive in evaluating emerging technologies, anticipating industry shifts, and investing before competitors do. However, acting too quickly can lead to costly errors if a technology proves unsustainable. Strategic planning must now include continuous environmental scanning, flexible budgeting, and contingency frameworks. Businesses that fail to keep up with technological change risk obsolescence, while those that respond strategically can achieve significant first-mover advantages.
Stakeholders—including customers, employees, shareholders, and suppliers—can exert significant pressure on a business to change its operations, products, or values. For instance, customer demand for ethical sourcing may compel a firm to alter supply chains, while employee expectations for work-life balance might lead to changes in working patterns. Shareholders focused on profitability may push for restructuring or divestment. These pressures require businesses to balance stakeholder interests with long-term strategy. Failure to do so can damage reputation, reduce loyalty, and impact overall business performance.
Practice Questions
Explain two internal causes of change that may affect a large business. (6 marks)
One internal cause of change is a shift in leadership. When new managers or CEOs take over, they may bring different strategic goals, leading to organisational restructuring or cultural transformation. Another cause is declining financial performance. Poor profitability may prompt cost-cutting, redundancies, or a change in pricing strategy. Both causes originate within the business and often require urgent strategic response. Internal pressures like these can be controlled to an extent and are critical for sustaining competitiveness and operational effectiveness.
Analyse the likely impact of disruptive change caused by technology on a retail business. (10 marks)
Disruptive technological change can significantly alter a retail business’s operations. The shift to e-commerce, for example, may reduce footfall in physical stores, requiring investment in digital platforms. While this offers efficiency and wider reach, it also demands retraining staff and overhauling logistics. The pace of disruption may create resistance among employees and increase costs short term. However, if implemented effectively, it can boost customer convenience, data-driven marketing, and competitiveness. Businesses that fail to respond may lose market share, while early adopters can gain strategic advantage. Overall, such change brings both risk and opportunity for retail firms.
